Balance of Power Oil Technical Analysis and Balance of Power Trading Signals

Created by Igor Livshin

Balance of Power indicator measures the strength of the bulls versus the bears by assessing ability of each to push crude oil price to extreme levels.

Crude Oil Technical Analysis & How to Generate Trading Signals

When using this technical indicator, the zero line crossovers are used to generate oil signals.

Center is marked as the zero line, levels oscillating above or below are used to generate oil signals.

Buy - The scale is marked from Zero to +100 for bullish market movements

Sell - The scale is marked from Zero to -100 for bearish market movements

How to Generate Buy & Sell Trading Signals

Buy Signal

When the BOP crosses above the zero a buy crude trading signal is given.

Also when the BOP is rising, the oil market is in an upwards trend, some traders use this as a buy oil signal but it is best to wait for the confirmation by moving above the zero mark. As this will be a buy oil signal in bearish territory & this type of signal is more likely to be a oil whipsaw.

Sell Signal

When the BOP crosses below zero a sell crude trading signal is given.

Also when the BOP is declining, the oil market is in a downwards trend, some traders use this as a sell oil signal but it is best to wait for a confirmation by moving below the zero mark because this will be a sell oil signal in bullish territory and this type of signal is more likely to be a oil whipsaw.

Sell and Buy Trading Signals

Divergence Crude Oil

In oil trading, divergences between the BOP and crude oil price can be used to effectively spotting potential reversal and/or oil trend continuation points in the crude oil price movement. There are several types of divergences:

Classic Divergence - Oil Trend reversal crude trading signal

Hidden Divergence - Oil Trend continuation

Oil Overbought/Oversold Conditions

This Balance of Power can be used to identify potentially overbought and over-sold conditions in crude oil price movement.

• Overbought-Oversold levels can be used to provide an early signal for potential oil trend reversals.
• These levels are generated when the indicator clusters its tops & bottoms thus setting up the overbought and oversold levels around those values.

However, crude oil price may also stay at these overbought and oversold levels & continue heading in that direction for a while and thus it's always good to wait until the BOP crosses over Zero mark.

From the oil example shown below, even though the Balance of Power showed the crude oil price was oversold, crude oil price continued moving downwards until the indicator crossed over to above Zero.

Technical Analysis in Crude Trading